iddlemen 

Who They Are and How They Operate 



BY PAUL D. CONVERSE 




LESSON B 



The American Institute of Agriculture 



MIDDLEMEN 
WHO THEY ARE AND HOW THEY OPERATE 

By PAUL D. CONVERSE 
Professor of Commerce, University of Pittsburgh 



LESSON B 




"Every Lesson by a National Authority" 



Confidential Edition 
Issued for Members 



Copyright, 1922 

THE AMERICAN INSTITUTE OF AGRICULTURE 

CHICAGO 



THE MAN WHO CONDUCTS THIS LESSON , "» ^ 







Prof. Paul D. Converse 



One of the few men of the United States who has 
had the opportunity to familiarize himself with 
almost every phase of middlemen activities is Prof. 
Paul D. Converse, head of the Department of Commerce 
of the University of Pittsburgh. 

Prof. Converse has had experience, not only as a 
teacher of marketing in general, but also as an in- 
vestigator employed by the Federal Trade Commission. 
In this work he had an opportunity to investigate 
the services performed by middlemen of all classes. 
In this work, he studied all the details of their 
business. 

As an investigator, he was given the privilege 
of examining the books of many middlemen concerns. 
He saw the middlemen operations from the inside, as 
well as the outside. He had the authority of the 
United States back of him in getting every detail in 
this investigation. Thus, he secured facts that 
would not be open to others at the time. 

It is true that many of these facts have been 
made public in the reports of the Federal Trade 
Commission, of which reports Prof. Converse was a 



CIAGSG123 



JAN -2 '23 



MIDDLEMEN 



joint author. However, many impressions and many 
facts could not be appropriately published in these 
reports. 

Prof. Converse has the additional qualification 
of having been a successful teacher of advanced 
sudents since 1913. He has served in the Washington 
and Lee University, and in the University of Pitts- 
burgh continuously since 1913, with the exception of 
the time he spent as an investigator for the Federal 
Trade Commission. 

Not only has he been successful in personally 
teaching thousands of college students, but he has 
prepared one of the few comprehensive text books on 
the subject of marketing. His book, "Marketing 
Methods and Policies" was published in 1921. 

With this experience, it was exceedingly for- 
tunate that The American Institute of Agriculture 
was able to secure Prof. Converse to prepare this, one 
of the most difficult lessons in your course to pre- 
pare. 

SUMMARY OF PROFESSOR CONVERSE'S TRAINING AND EXPERIENCE 

EXPERIENCE: Head, Department of Commerce, University of Pittsburgh, 1919- 

Professor of Commerce, University of Pittsburgh, 1921- 

Assistant Professor of Commerce, University of Pittsburgh, 1918- 21 

Instructor, University of Pittsburgh, 1915-18 

Instructor, Washington and Lee University, 1913-15 

Investigator, Federal Trade Commission on canned foods, canned salmon, 
perishable foods, and farm implements, 1917-19 

Examiner in charge Canned^Salmon Investigation, Federal Trade Commis- 
sion, 1918 

Assistant Examiner in charge of the Farm Operating Equipment Inves- 
tigation, Federal Trade Commission, 1919 

MEMBER: American Economic Association; Pittsburgh Economic Club; 
American Association of College Professors 

AUTHOR: ' 'Marketing Methods and Policies''; government reports and 

various articles; joint author of the following reports of the Fed- 
eral Trade Commission: 

Canned Foods — Fruits & Vegetables, 1918 

Canned Foods — Canned Salmon, 1919 

Farm Operating Equipment, 1920 

STUDENT: M. A., Washington and Lee University, 1914; Columbia University; 
University of Wisconsin 



LESSON B 



HOW TO STUDY THIS LESSON 

Don't attempt to study Lesson B until you are sure 
you have mastered Lesson A. And don't read this les- 
son until you have answered to your own satisfaction! 
all of the questions sent you with Lesson A. 

Maintain an Open Mind 

Be sure you study this lesson with an open mind. 
If you have any prejudice either for or against so- 
called "middlemen," forget that, temporarily. After 
you have mastered this lesson, that prejudice will 
either be a firm conviction based on facts you find 
here, or else it will be replaced by a firm conviction 
on which you can successfully argue with anyone. The 
facts of the middlemen situation are presented here 
concretely and completely. 

Try to imagine as you study, what the condition 
would be without their service. Think of the service 
rather than the man. Consider the possibility of a 
farmers' cooperative performing the service. If 
the service is necessary, then we must have someone 
to perform it. If the man in question does not perform 
the service satisfactorily, then it's up to those of 
us who have products to sell to find someone else to 
perform that service. 

Remember that middlemen are in business because 
someone is willing to pay them for the service they 
perform. It is true that many of them have suggested 
the service to producers or to consumers, but they 
would not be able to perform the service profitably if 
it were not for the fact that someone accepted their 
suggestion and was willing to pay them for their 
work. 

Argue the Subject with Your Friends 

You probably have some friends who believe that 
middlemen should be eliminated. Or you may have 
someone who believes that all middlemen are necessary 
and are performing their services admirably. 
Whichever side you are prepared to take when you have 
finished with this lesson, should be argued with this 
person. 



MIDDLEMEN 



Arguments bring out a lot of points that cannot 
be brought out in print. This lesson provides the 
facts that will arm you for any argument on middle- 
men. If, with these facts at your command, you 
cannot win the debate, you can be fairly certain that 
you have not mastered the lesson. Go back to it 
again, then, and find out what you didn't get before. 

Discuss the Subject With Local Business Men 

Talk over the facts brought out in this lesson 
with your county agent. Ask him how cooperatives 
perform middlemen services. 

Then go to your banker and ask him about certain 
facts, especially the financing. Then talk with 
other business men. 

Your druggist knows that he would have difficulty 
in stocking his store without jobbers and whole- 
salers. 

Your grocer knows that he would have much less 
time to devote to filling your orders if he had to buy 
direct from the producer all of the products he 
handles. 

Your hardware man knows that he could not possibly 
collect the several thousand different items he 
handles if it were not for the help of certain middle- 
men. 

Talk with these merchants about the middlemen 
proposition. Give them your ideas, and they will 
give you theirs. 

Then talk with men who are handling those lines 
of merchandise that are supplied to them direct by 
manufacturers. Some automobile dealers get their 
supplies from factory branches. Many farm imple- 
ment dealers benefit by the same system. By talking 
with these men, you will get both sides of the propo- 
sition and will be better able to understand the real 
middlemen situation. 

Study One Part at a Time 

The study outline with this lesson will help you 
in your study. It shows you how the lesson is divided 
into different parts. These parts, of course, have 
a certain connection with each other. But this 



WESSON B 



division will enable you to master a part of the 
lesson at a time. 

When you have finished with the lesson, you ought 
to have not only a good idea of middlemen and the 
services they perform, but you ought to have at your 
tongue's end the names of the various classes of 
middlemen, and you ought to be able to explain the 
different services performed by each. 



STUDY OUTLINE OF LESSON B 

MIDDLEMEN — WHO THEY ARE AND HOW THEY OPERATE 

Page 

Middlemen Unpopular 11 

Purpose of This Lesson 12 

Principal Classes of Middlemen 12 

Retailers. 12 

Wholesalers 13 

Brokers 13 

Country Shippers 14 

Manufacturers and Processors 14 

How Middlemen Meet Important Needs 15 

Egg Prices Would be Ruinous in Summer Without 

Middlemen Services 15 

Why Farmers Buy But Little Direct From Manufac- 
turers 16 

Producer and Consumer Must be Near for Direct 

Selling 16 

Can Goods be Marketed Economically Without 

Wholesalers? 17 

Tendency Toward Direct Relations Between Manu- 
facturer and Retailer 17 

Farmers Seldom Profit by Selling Direct to 

Retailers 18 

Nine Important Service Agencies 18 

Study Help - (Editor's Note) 18 

Important Marketing Services. 18 

Important Middlemen 18 

Which Middlemen Perform the Various Services. 19 
Who Perform the Nine Essential Marketing 

Services 19 

1. Local Buyers 19 

Marketing Services Performed by Local 

Buyers 20 

The Necessity for Local Buyers 21 

2. Car-lot Shippers 21 

Necessity for Car-lot Shippers 21 

3. Brokers 22 

What Brokers Charge 22 

Who Employ Brokers 23 

Services Performed by Brokers 23 

The Necessity for Brokers 23 

Future of Brokerage Business 24 

7 



LESSON B 



STUDY OUTLINE— (Continued) 

4. Commission Merchants 24 

Services Performed by Commission Men. ... 24 
Reasons for Decline in Commission 

Business 25 

The Commission Man' s Side 25 

Future of the Commission Business 26 

Proposals to Revive Commission Business. 26 

5. Auction Companies 27 

Services of Auctions 27 

Charges for Service 27 

Services Performed 28 

Influence on Prices 28 

Who Use the Auction Service 28 

The Need and Future 28 

6. Car-lot Wholesalers 29 

How Car-lot Wholesalers Operate 29 

Services Similar to Those of Brokers... 30 

Cost of Doing Business 30 

7. Jobbers 30 

Cost of Doing Business 31 

Services Performed by Jobbers 31 

The Future of the Jobbers 32 

8. Retail Dealers 32 

Large and Small Stores 32 

Small Stores Most Numerous 33 

Services Performed by Retailers 33 

How to Find the Right Agency to Handle Your 

Products 34 

Sources of Information on Middlemen 34 

Farmers' Cooperatives Gather Facts About 

Middlemen 35 

How Many Middlemen Handle Various Products 35 
Most Products Are Owned by Several Middlemen 

Before Being Finally Consumed 36 

1. When No Middleman Is Involved 36 

Manufacturers Sell Direct to Consumers. 37 

2. When One Middleman Handles the Product.... 37 

3 . Two Middlemen 38 

Some Manufacturers Do Their Own Whole- 
saling 39 

4. Three Middlemen 40 

Why Brokers Are Employed 41 

Farm Produce 41 

5 . Four Middlemen 41 

Flour Usually Follows Route No. 5 42 



MIDDLEMEN 



STUDY OUTLINE-- (Continued) 

6. Five Middlemen 43 

7. More Than Five Middlemen 44 

Variation in Routes 44 

Sales in the Same Stage of Distribution 45 

Scalping 45 

Speculation Not Always Involved 46 

Suppose There Were No Middlemen 46 

A Return to Primitive Living Conditions 47 

We Are Better Off Today 47 

Need More Study 47 



10 LESSON B 



INTRODUCTION 

In Lesson A you learned the services that must 
be performed upon most farm products before they are 
finally purchased by the ultimate consumer. Now 
you will learn who performs those services and why 
certain men perform certain services. 

As you studied Lesson A, certain questions came 
up in your mind. You wondered, perhaps, why it is 
that there are so many middlemen. 

You probably wondered why one middleman doesn't 
perform all of the nine services. 

It probably occurred to you that if such were the 
case, this one middleman would not expect to make 
nearly so much profit as is necessary when nine 
different men perform nine different services in 
the course of marketing. 

These questions, and many others, will be 
answered in this lesson, for this lesson tells Why, 
as well as How. 



MIDDLEMEN 
WHO THEY ARE AND HOW THEY OPERATE 

By PAUL D. CONVERSE 

Middlemen Unpopular 

Perhaps no group of people has been so much 
maligned in recent years as the middlemen. It has 
been said that there are too many middlemen; that 
many of them are speculators, pure and simple ; that 
they are inefficient ; that they are avaricious 
profiteers ; and that they carry on their businesses 
at too heavy expense to both producers and consumers. 

Some time ago the writer had a discussion with a 
very good farmer friend who made substantially all 
the accusations made above and others thrown in for 
good measure. To hear him talk, you would have 
thought that all middlemen should have been shot at 
sunrise, if not sooner. 

It is clearly unfair to condemn anyone without 
hearing all sides of the case. Yet this is just what 
this friend was doing, for it was evident that he had 
made no particular study of the marketing machinery 
and had a very hazy idea of who the various middlemen 
are and how they carry on their work. 

It is obviously impossible to make an intelligent 
criticism of something that we do not understand in 
principle and to some extent in detail. Furthermore 
this friend's criticism was 100% destructive. Con- 
structive criticism is an excellent thing, but 
destructive criticism generally is worse than use- 
less. 

So I asked my friend why he didn't do something to 
better conditions, something constructive. I sug- 

11 



12 



LESSON B 



gested that he might start by getting the farmers in 
his county together and help to organize a cooperative 
enterprise to aid in the marketing of some of their 
products. To this he replied that he guessed he 
didn't want to do anything except to let off steam by 
"cussing. " 

Purpose of This Lesson 

That's the trouble with too many of us - we don't 
like conditions but we won't exert ourselves to 
better them. Another fault is that we are too prone 
to condemn things that we do not understand. 

It is the purpose of this lesson to show who the 
middlemen are, what functions they perform, and how 
they carry on their work. It is not its purpose to 
either justify or condemn the middlemen but simply 
to show something of their operations. It is hoped 
that the description contained in this lesson will 
help you to make more constructive criticism of the 
existing marketing machinery. 

PRINCIPAL CLASSES OF MIDDLEMEN 

The principal classes of middlemen are: retail- 
ers, wholesalers, brokers, and country shippers. 

Retailers 

The retailers are the most numerous and also the 
best known class of middlemen. Every reader is 
familiar with one or more types of retail stores. 
The cross roads store, the general store, the 
farmers' cooperative store, the mail order house, 
the large city department store, the grocery store, 
the hardware store, the dry goods store, and the soda 
fountain are all retailers and hence all middlemen. 

The retailer is ordinarily the middleman who 
exacts the largest margin for his services. If we 
were to condemn middlemen because of the margin 
taken for the handling of goods, then the retailers 



MIDDLEMEN 13 



would come in for the greatest condemnation. Yet, as 
a matter of fact, the retailers are probably the 
least condemned of any class of middlemen because most 
of us are fairly familiar with their work. 

Wholesalers 

The wholesalers are less known to the public. 
They comprise in a general way middlemen, known as: 
wholesalers, car-lot receivers, car-lot wholesalers, 
jobbers, and commission merchants. 

As a rule, a wholesaler has a warehouse where 
large quantities of goods are received and stored. 
The warehouses do not need show cases and the other 
methods of displaying goods used by retailers. 

They, however, often have more or less elaborate 
sample rooms, where samples of goods are displayed. 

As a rule, a wholesaler has a force of traveling 
salesmen who call upon the retailers or smaller 
wholesalers (jobbers) to solicit business. The 
goods are then delivered to the buyers either by 
truck, boat, or railroad. 

There are some wholesalers who deal only in car- 
loads of goods. Such wholesalers do not need ware- 
houses. They conduct their businesses from rented 
offices. 

Brokers 

Under the general classification of brokers, may 
be included: brokers, sales agents, selling houses, 
manufacturers' representatives, and purchasing 
agencies. The broker is ordinarily an independent 
agent whose purpose is to sell (or buy) goods. He is 
paid a commission in place of a salary, and is an agent 
and not a hired employee. 

His chief function is to sell goods. A large and 
successful broker may have a large suite of offices 
with several employees. The smaller broker, on the 
other hand, frequently rents only desk room in some- 



14 LESSON B 

body's office. Still smaller brokers have no office 
at all outside of their homes. 

Country Shippers 

Farmers' cooperative exchanges, country eleva- 
tors, car-lot shippers, local merchants, live stock 
buyers, or representatives of car-lot wholesalers 
may all act as country shippers. The farmers through 
their cooperative organizations thus become middle- 
men. 

The chief functions of the country shippers are 
to buy goods from various producers, combine the 
goods into carloads, and sell them to receivers in 
the distributing or consuming markets. 

Manufacturers and Processers 

Factories such as flour mills, cotton mills, 
woolen mills, packing houses, and tobacco factories 
also perform the services of middlemen. They have 
purchasing departments to secure raw materials, and 
sales departments to dispose of their finished 
products. They, however, change the form of the 
goods handled and so are thought of primarily as 
producers rather than as middlemen. 

The foregoing paragraphs have presented a brief 
sketch of the four chief classes of middlemen. This 
was done to help you visualize the middlemen as they 
are discussed on the following pages. 

In these pages you will find a somewhat fuller 
discussion of the chief types of middlemen - who they 
are, how they operate, and what services they per- 
form. We shall, after showing the need for middle- 
men, consider them in the approximate order in which 
they handle the goods between the farmer and the 
consumer. 



MIDDLEMEN 15 



HOW MIDDLEMEN MEET IMPORTANT NEEDS 

It is true that in some instances the services of 
middlemen are not needed in getting goods from the 
producer to the consumer. For example, if Mrs. Jones 
has a neighbor who keeps hens she may visit this 
neighbor two or three times a week to buy her eggs. 
Or the neighbor may carry her eggs to nearby pur- 
chasers. 

But if Mrs. Jones lives in a city, it may be im- 
possible for her to make a trip into the country 
every time she needs a dozen eggs. 

NC 

On the other hand, the producer probably cannot 

^ deliver the— eggs to distant consumers. Even if the A/v 

egg£ are sold within a few miles of the place where 

they are produced, it. may take so much time for the 

producer to deliver the eggs to the consumers, that it 

would be more profitable to sell them at a lower price 

to a local buyer (middleman) than to peddle them from 

house to house. < 

A good illustration of how farmers generally, 
hesitate to sell to housewives, is seen in cities 
having public markets. Many farmers prefer to sell 
their produce at wholesale rather than take the time 
to sell it to the housewives at retail on the markets. 



Egg Prices Would Be Ruinous in Summer Without 
Middlemen Services 



^ 



Again, in the spring the hens lay more eggs than 
are wanted at once for food. These eggs can be kept 
in cold storage plants until the following winter 
when few hens are laying. Neither the individual 
producer nor consumer, however, has or needs enough 
eggs to make possible their economical storage. 
Hence some middlemen are necessary who will buy large 
quantities of eggs and place them in storage, iivhile 
this type of middleman service is difficult for the 
individual farmer, it is possible and in many cases 




16 LESSON B 

entirely practical for farmers to store eggs in 
cooperation with other farmers. 

W hy Farmers Buy But Little Direct From Manu- 
facturers 

What is true of eggs, is true of practically every 
commodity. The farmer cannot leave his farm to visit 
the soap factory, shoe factory, slaughter house, 
cheese factory, nail mill, plow works, binder twine 
factory, and all the other factories to secure the 
goods which he desires for use in his home or on the 
farm. That is why he patronizes the local store 
which will supply him with hundreds of articles in 
small quantities at the time he wants them. 

It is true that he might order many of these 
articles by mail from the factories or from other 
farmers in other parts of the country. He would, 
however, need to order a long time before the articles 
were needed, - a very difficult matter. It would 
greatly increase the selling expenses of the manu- 
facturers and the buying expenses of the farmers. It 
would involve delays in exchanging goods or making 
adjustments and would greatly limit the sale of goods 
on credit. For these reasons, the quantity of goods 
sold by mail is limited and a large part of such goods 
are sold by "mail order houses" or merchants and not 
direct to the consumers by the manufacturers. 




Producer and Consumer Must Be Nea r for Direct 
Selli ng 

It is evident from these few examples, that direct 
marketing is only possible when consumers and pro- 
ducers are close together and when supply and demand 
can be adjusted to each other. 

When goods must be transported for considerable 
distances or stored for long periods, especially if 
special facilities are necessary for storage, mid- 
dlemen are indispensable. Ordering by mail with 
delivery by freight, or parcel post, furnishes a 



MIDDLEMEN 17 

minor exception to this statement. Here again, 
however, farmers may organize an association and 
perform the middlemen services themselves. 

Can Goods Be Marketed Economically Without 
Wholesalers? 

All middlemen except the retailer might be dis- 
pensed with in the sale of manufactured goods if the 
manufacturers would do the wholesaling themselves, 
having their salesmen call on retailers. 

But the manufacturers would then have to build 
warehouses at convenient points all over the country 
and deliver the goods to the retailers in small quan- 
tities as needed by them. 

It is doubtful if such a system would reduce 
marketing costs because the selling and warehousing 
services would almost surely be as much or more 
expensive when performed by the manufacturers than 
when performed by the wholesalers, for the simple 
reason that one wholesaler now sells the products of a 
large number, perhaps several hundred. 

It would probably be impossible for any but large 
manufacturers to perform these services over any 
considerable part of the United States. 

Tendency Toward Direct Relations Between Manu- 
facturer and Retailer 

There is at the present time a tendency for large 
manufacturing concerns to use only the retail dealers 
in the distribution of their goods. Examples may be 
found in the distribution methods used by the Ford 
Motor Co. , by Proctor and Gamble, and by many large 
shoe manufacturers. There is also a tendency for 
large retail organizations, such as chain stores, 
department stores, and mail-order houses, to perform 
the wholesaler's functions themselves and to buy 
direct from the manufacturers or even to enter the 
manufacturing field. How far reaching will be this 
movement is difficult to predict, but farmers can 



18 LESSON B 

well afford to study these developments for they 
indicate similar possibilities for farmers marketing 
organizations. 

Farmers Seldom Profit by Selling Direct to 
Retailers 

Farming must always be made up of millions of 
men, each with products to sell. Think of the con- 
fusion if each of our six million farmers were to 
attempt to sell their products direct to consumers 
or retailers ! 

The organization of large cooperative selling 
associations might make it possible for these farmer- 
owned companies to do the work of middlemen. To date, 
however, most of such organizations have chosen to 
sell to the established wholesale dealers rather than 
to attempt to sell direct to the small retailers. 

NINE IMPORTANT SERVICE AGENCIES 

You have learned how middlemen meet important 
needs in marketing. Now let us go more into detail 
as to who the various middlemen are and what services 
are performed by each. 

STUDY HELP -(Editor's Note) 

You will remember that Dr. Taylor in Lesson A gave a list of 
important services that are performed upon many agricultural products 
between the time they leave the farm and the time they arrive at the home 
where they are to be consumed. This list of services is repeated here 
to aid your memory: 

IMPORTANT MARKETING SERVICES 

1. Standardization 6. Financing 

and Grading 7. Risk-taking 

2. Packing 8. Selling 

3. Assembling 9. Dispersing 

4. Storage or Dividing 

5. Transportation 

There are nine classes of middlemen who commonly perform one or 
more of these important services. The list of these middlemen 
agencies follows: 

IMPORTANT MIDDLEMEN 

1. Local buyers 6. Car-lot wholesalers 

2. Car-lot shippers 7. Jobbers 

3. Brokers 8. Retail Dealers 

4. Commission men 9. Transportation agencies 

5. Auction companies 



MIDDLEMEN 



19 



WHICH MIDDLEMEN PERFORM THE VARIOUS SERVICES 

In this section of Lesson B you are to learn how these services are 
divided between the various middlemen. It will be of value to you first 
to consider the following tabulation of these nine middlemen and the 
services they perform. The numbers in this tabulation correspond to the 
numbers in the two lists just given. 

You must remember in studying this tabulation that not all local 
buyers perform all of the nine services listed under the head of "local 
buyer", but local buyers, under some conditions, do perform one or more 
of these nine services. 



In the same way, the other middlemen may perform one or more 
the services listed in this tabulation. 



of 



WHO PERFORM THE 9 ESSENTIAL MARKETING SERVICES 



1. LOCAL BUYERS 



1. 


Standardization and Grading 


2. 


Packing 




3. 


Assembling 




4. 


Storage 




5. 


Transportation 




6. 


Financing 




7. 


Risk-taking 




8. 


Selling 




car-: 


LOT SHIPPERS 




1. 


Standardization 


and Grading 


2. 


Packing 




3. 


Assembling 




5. 


Transportation 




6. 


Financing 




7. 


Risk-taking 




8. 


Selling 




BROKERS 





3. 



.6. Financing 

8. Selling 

9. Dispersing or Dividing 

4. COMMISSION MEN 

1. Standardization and Grading 

5. Transportation 

8. Selling 

9. Dispersing or Dividing 

5. AUCTION COMPANIES 

6. Financing 

8. Selling 

9. Dispersing or Dividing 



6AR-L0T WHOLESALERS 

1. Standardization and Grading 

3. Assembling 

4. Storage 

5. Transportation 

6. Financing 

7. Risk-taking 

8. Selling 

9. Dispersing or Dividing 



7. JOBBERS 

4. Storage 

5. Transportation 

6. Financing 

7. Risk-taking 

8. Selling 

9. Dispersing or Dividing 

8. RETAIL DEALERS 

4. Storage 

5. Transportation 

6. Financing 

7. Risk-taking 

8. Selling 

9. Dispersing or Dividing 

9. TRANSPORTATION AGENCIES 

4. Storage 

5. Transportation 
7. Risk-taking 



1. 



Local Buyers 

You have 50 bushels of apples. A traveler in 
city 100 miles away is hungry and wishes to buy an 
apple. But how are you going to find enough hungry 
travelers to eat 50 bushels of apples? What would 



20 LESSON B 

it cost you per apple if you mailed each one sepa- 
rately to a different person? You would have to 
consider the postage, the cost of the package, and 
the labor of packing. 

To be shipped economically, farm products, as a 
rule, must be shipped in car lots. Very few farmers' 
are able to provide a full car of any given product 
at one time, unless it be grain. That is why farmers 
have found it necessary to make use of the services 
of middlemen, who buy products from many farmers and 
make up carloads for shipment. 



Marketing Services Performed by Local Buyers - 
The local buyer or car-lot shipper is the one who 
buys direct from the farmer in most cases. The 
local buyer generally pays cash to the farmer, and 
performs several necessary services in marketing, 
including: financing, assembling, grading, storage, 
packing, transportation, risk-taking, and selling. 

As a rule, local buyers are either country store- 
keepers, country elevator operators, live stock 
buyers, car-lot shippers, car-lot receivers, farm- 
ers' cooperative associations, or merchants who 
specialize in buying one or more products. Car-lot 
receivers (or wholesalers) often send their repre- 
sentatives into the growing sections during the ship- 
ping season, and thus become local buyers. 

Live stock shipping associations ordinarily 
perform only the service of assembling, because 
these associations seldom pay for the live stock 
until the returns are received from the terminal 
market. Neither do they do very much grading (the 
work of standardizing) . 

Country elevator operators not only assemble 
grain, but usually grade it and store it. (You will 
remember that you learned in Lesson A that these 
services that are being mentioned are necessary to 



MIDDLEMEN 21 

put farm products into the form in which they are 
most acceptable to the ultimate consumer.) 

Local fruit growers' exchanges not only do the 
assembling work, but often standardize, grade, 
pack, and sometimes store the fruit. Some of them 
also process the fruit to put it into more saleable 
condition. 

The Necessity for Local Buyers — Many farmers' 
cooperative associations are laying more emphasis 
on storing their products in order to properly feed 
the markets and realize better prices for their mem- 
bers. This is notably true of the associations han- 
dling sweet potatoes. 

Local buyers not only serve better in assem- 
bling goods, but often sell them to better advantage 
than could be done by the individual farmers. This 
is because they keep in closer touch with terminal 
markets and with market conditions. The larger the 
organization, the more able it is to keep up with 
market conditions and prices. This is one of the 
chief arguments in favor of forming large coopera- 
tive associations. 

2. Car-lot Shippers 

Most local buyers are car-lot shippers. In 
the case of goods bought in small quantities, how- 
ever, the local buyers may be unable to accumulate 
car-lots. They are then forced to sell to other 
middlemen who assemble the goods of several local 
buyers into carloads. 

Necessity for Car-lot Shippers — Car-lot ship- 
pers are important in the marketing of eggs. Eggs 
must be shipped while fresh. Hence many local 
buyers are unable to hold the eggs long enough to 
secure car loads. 

Car-lot shippers, as separate from local buyers, 
are to be found handling products which are produced 
in small quantities by individual farmers. For 



22 LESSON B 



example, in a wool-growing community, the local 
buyers can easily assemble car lots, while in a com- 
munity having few sheep, the local buyer may have 
to sell to car-lot shippers. 

5. Brokers 

A broker may be defined as an agent who nego- 
tiates contracts for the purchase or sale of goods 
ordinarily without having possession of the goods. 
He has no control over the goods and merely nego- 
tiates the sale. He finds the buyer, gets an offer 
which he accepts or rejects or submits it to the 
owner of the goods for acceptance or rejection. He 
is paid on a commission basis — either a percentage 
of the sale price or a flat rate per unit. 

As soon as "brokers" are mentioned, some people 
think of stock brokers and the stock exchange. We 
are not, however, concerned here with stock brokers. 
We are interested in brokers who handle goods. 

Such brokers are sometimes called merchandise 
brokers. Merchandise brokers must not be confused 
with merchandising brokers. The latter are brokers 
who, in addition to their brokerage business, buy 
and sell goods on their own account. 

In buying and selling their own goods, they are 
principals and not agents. Hence, in these trans- 
actions, they are not brokers. The term "merchan- 
dising broker" is, however, generally applied to 
persons who carry on both a brokerage and a buying 
and selling business. 

What Brokers Charge — The broker is a special- 
ized, independent, salesman who is paid on a com- 
mission basis. He performs a selling function. As 
he deals with large quantities and does not actually 
handle the goods, he performs this function very 
cheaply. The rates of commission vary with the goods 
handled and with the services performed. The actual 
rates generally vary from a fraction of 1% to Z% or 
4% of the sale price. 



MIDDLEMEN 23 

A few common rates are : canned goods , 2% to 2 1/2% ; 
eggs, 1/4 cent to 1/2 cent per dozen; butter, 1/8 to 
1/2 cent a pound ; apples, $15 a car ; old potatoes, $10 
a car ; and grain, where the broker finances the trans- 
actions, 1/2 % to 1%. Sales agents generally receive 
higher rates than other brokers. 

W ho Employ Brokers — The shippers of country 
produce, whether country elevator, local buyer, car- 
lot shipper, or farmers' cooperative association, 
may employ brokers to dispose of their goods in the 
large city markets. Many manufacturers employ 
brokers to dispose of their products. This is espe- 
cially true of the smaller manufacturers. 

Services Performed by Brokers — Brokers, being 
located at terminal markets, are in daily touch with 
market conditions and prices. A good broker is able 
to give his principal — i. e. , the man for whom he 
sells — valuable information concerning the trend 
of prices, what price to accept, and the proper time 
to buy or sell. Many concerns employ brokers 
primarily for the advice and information obtained 
from them. 

Some brokers help to finance their principals 
either by the loan of money, purchase of capital 
stock, endorsement of notes, guarantee of accounts, 
or advance payments on the shipment of goods. 

Brokers are not supposed to handle goods, but in 
order to satisfy their principal, they sometimes 
receive goods and make delivery to the buyers. 
They also sometimes make collections and look after 
their principal's interests when goods are refused 
or when adjustments are necessary. 

The Necessity for Brokers — Brokers exist pri- 
marily to perform a selling service. In addition, 
they often give information and advise, help to 
finance their principals and not infrequently look 
after the delivery of goods and the collection of 



24 LESSON B 

accounts. As they perform these services for a low 
rate of commission, many students regard them as 
desirable and efficent middlemen. One government 
commission, after a lengthy inquiry, reported that 
they were more firmly established and more desirable 
middlemen than were the wholesalers. 

They have, however, been bitterly criticised for 
encouraging speculation and for persuading their 
principals to lower their prices in order that they 
might make sales and earn commissions. 

Future of Brokerage Business — It is probably 
true that the merchandising business conducted by 
brokers is speculative. Some brokers also may 
encourage others to speculate. This practice is to 
be deprecated, but no other satisfactory method of 
getting the same service that brokers perform has 
been found. 

4. Commission Merchants 

A commission merchant is a person who receives 
goods belonging to another, for sale on a consign- 
ment basis. That is, he has control of the goods 
and when sold, must account to the owner for the pro- 
ceeds of the sale. 

Services Performed by Commission Men — The dis- 
tinction between the commission merchant and the 
broker is that the commission merchant has the goods 
in his possession, delivers them to the buyer, and 
makes the collection while the broker merely nego- 
tiates the sale. 

In actual practice, the same man may do both a 
brokerage and a commission business. In the grain 
markets, the dealers are often called "brokers," 
although much of their business is done on a con- 
signment basis. 

Farm products have been more generally sold on a 
commission basis than any other class of goods. So 
common has this practice been that wholesale dealers 



MIDDLEMEN 25 

in fruits and vegetables are still called "commis- 
sion merchants," although most of them now do 
relatively little commission business. 

At the present time, probably more grain and 
live stock are sold on a commission basis than any 
other classes of goods. 

Reasons for Decline in Commission Business — 

There are many reasons for the decline in the com- 
mission business especially in the handling of per- 
ishable products. Perhaps the most important has 
been the fact that most goods have been consigned 
when there was a large supply of goods or a "glut" on 
the market . 

Under such conditions, the farmers or local 
buyers often choose to ship to commission men rather 
than accept the low prices offered by the buyers at 
the shipping points. Under these conditions, low 
prices are to be expected, and goods sometimes sell 
for less than the freight charges. Such results 
naturally displease the shippers and cause a loss of 
confidence in this method of selling goods. 

In the second place, commission men have been 
accused of many dishonest practices, such as false 
returns, sale of goods to themselves at low prices, 
false quotation of market prices, making unreasonable 
charges for extra expense, etc. The broker doesn't 
have as much opportunity for such dishonesty. 

There have undoubtedly been many instances of 
unfair dealings and commission men do not deny that 
there have been crooks in the commission business, the 
same as in any other business. But they do claim that 
the average honesty of commission merchants is as 
high as that of any other class of business men. 

The Commission Man's Side — They say that most 
shippers do not understand market conditions which, 
unfortunately, is largely true. They say that 
most goods are consigned when the market is glutted. 



26 



LESSON B 



and that many of the consigned goods are of poor 
quality. This is due to the fact that farmers seldom 
grade what they ship. They say further that goods 
which cannot be satisfactorily sold otherwise, are 
consigned, which means that they are generally 
poorly graded, or packed by a grower who is unknown 
or who does not have the reputation for a high grade 
of goods. 

Future of the Commission Business — Whether 
unfair practices on the part of the commission 
merchants, or the consigning of goods of poor quality 
or at inopportune times has been the chief cause, the 
fact remains that the commission business in fruits 
and vegetables, at least, has fallen into general 
disrepute. 

It continues principally where the shippers have 
a fair degree of confidence in the commission mer- 
chants. This confidence may be based on reliable 
market reports as to the prices prevailing at the 
time of sale, or on frequent visits to the market by 
the shipper. Such visits will enable the buyer to 
check the prices reported by the commission man 
against prevailing prices, to see the condition in 
which his goods actually arrive, and to establish 
personal contact with the commission man. 

Proposals to Revive Commission Business — Sev- 
eral suggestions have been made for reviving the 
commission business. Some states have passed laws 
regulating commission men, but such laws have done 
little to revive the industry. 

One suggestion that seems worthy of careful con- 
sideration is that the government place in each 
important market, an agent to whom shippers may send 
their goods. This agent would turn the goods over to 
brokers, or commission men, or have them sold at 
auction and see that accurate returns were made to 
the shippers. 



MIDDLEMEN 27 

Commission charges vary with services performed 
and the nature of the goods handled. With grain, the 
usual rates are 3/4 of 1% to 1% of the selling price. 
In the case of produce, the rates are generally from 
5% to 10%. 

5. Auction Companies 

Auction companies provide facilities for sell- 
ing goods publicly by an auctioneer to the highest 
bidder. All classes of goods from antiques to live 
stock, from second-hand furniture to bankrupt rail- 
roads, from rare paintings to fresh fruit are sold at 
auction. The kind of auction sales that we want to 
consider briefly are those where farm products are 
sold to jobbers and retailers. 

Services of Auctions — There are some 18 or 20 
auctions in the United States where citrus and 
deciduous fruits are regularly sold. These auctions 
are nearly all located in the large cities of the East 
and Middle West. Their total sales run into the 
hundreds of millions of dollars annually. 

Many people have been impressed by the effi- 
ciency of their operations. One or two auctioneers 
can, in a sale lasting only a few hours, dispose of 
20 to 100 cars of fruit. In other words, one auc- 
tioneer can sell as many goods as a dozen or so men 
could sell at private sale in the same time. 

Charges for Service — Most of this fruit is sold 
for a commission of from 1 1/2% to 2 1/2%. 

Such facts as these make the auctions appear to 
be very efficient pieces of marketing machinery. 
It should be borne in mind, however, that the 
auction companies do not act as consignees of goods 
and it is, therefore, necessary for out-of-town 
shippers who desire to have their fruit sold at auc- 
tion to have an employee, or a broker, look after their 
interests at the auction. A suggested reform is that 
auction companies should be subjected to public regu- 



28 LESSON B 

lation and be required to receive goods on consign- 
ment for sale at auction. This would make it 
unnecessary for the shippers to employ third persons. 

Services Performed — The auctions perform prin- 
cipally a selling function, although some of them 
unload the goods from the cars and make delivery 
to the buyers' stores. 

Influence on Prices — There is a difference of 
opinion as to just what influence auction sales have 
on prices. Some argue that they exaggerate the 
influence of supply and demand and lead to widely 
fluctuating prices. 

Others argue that, since they give free play to 
the law of supply and demand, and since they give 
proper weight to each of these factors, they tend to 
stabilize prices. We do not now have enough informa- 
tion to enable us to determine which of these argu- 
ments is correct. 

Who Use the Auction Service — The fruit auctions 
are used by growers' co-operative shipping associa- 
tions, by large car-lot shippers, and privately 
owned distributing organizations, by car-lot re- 
ceivers, and in fact by almost anyone who owns large 
quantities of the kinds of fruit handled and desires 
it sold at auction. 

The Need and Future — In many ways, as pointed 
out above, the auctions appear to be efficient pieces 
of marketing machinery. There are many, however, 
who claim that we would be better off without them. 
They take a large amount of the buyers' time and 
many buyers would be glad to buy in a way that would 
save the time required to sit through the daily 
sales. In fact, some buyers employ brokers to attend 
the sales and buy for them. The auction method of 
selling seems to be growing. Two or three new fruit 
auctions have been opened during the last two years. 



MIDDLEMEN 29 

6. Car-lot Wholesalers 

Car-lot wholesalers, or car-lot receivers as 
they are known in the produce trade, buy in car-lot 
quantities and sell either in car lots or in smaller 
quantities. They sell ordinarily to jobbers and 
retailers. 

For example, in the Philadelphia produce trade, 
the car-lot receivers sell to the jobbers in lots of 
20 to 100 units (boxes, crates, or barrels). 

On the other hand, in Pittsburgh many of the car- 
lot receivers sell directly to retailers in lots as 
small as one unit. 

How Car-lot Wholesalers Operate — The car-lot 
receivers may purchase their goods from brokers, 
country shippers, farmers' cooperative organiza- 
tions, creameries, or producers. In fact, they 
very often send their buyers into the producing seen 
tions during the shipping seasons to buy from the 
farmers or local buyers. They sometimes help to 
finance the growers. 

They may buy only for sale in the market where 
located or they may sell in the city offering the 
highest prices. For example, one man buys cars of 
fruit in California, "tramps" them east, and sends 
out "tramp" lists while they are "rolling." 

That is, he ships the fruit, expecting to sell it 
while in transit, having the railroad deliver it to 
the city where it is sold. If not sold by the time the 
cars reach the diverting point, he has them delivered 
to his own city, where he sells them as best he can. 

Some car-lot wholesalers deal only in one com- 
modity or in one group of commodities. Others handle 
many articles. Altogether they handle many prod- 
ucts — potatoes, fruits, butter and eggs, flour, 
cheese, lumber, coal, etc. 



30 LESSON B 

Some deal only in car-lots while others deal in 
smaller quantities. For example, in the distribu- 
tion of flour, there are wholesalers who have no 
warehouses and who deal only in car-lots, while there 
are others who have warehouses and sell in less than 
car-lots. The latter supply jobbers and retailers, 
selling to them in lots as small as 10 or 20 barrels. 

Services Similar to Those of Brokers — The 
operations of these wholesalers buying and selling 
only in car lots very closely resemble the operations 
of brokers. The distinction is one of the owner- 
ship of the goods rather than one of the method of 
conducting the business. The dealer owns the goods 
and is in business for a profit, while the broker 
does not have title to the goods and only earns a 
commission on his sales. 

Cost of Doing Business — The car-lot whole- 
salers' cost of doing business varies with the 
average size of sale and the services performed. 
Those who buy and sell only in car lots commonly have 
expenses of less than 2% of sales. Those maintain- 
ing stores and selling in relatively small lots to 
jobbers or retailers commonly have expenses of 4% to 
8% of sales. 

7. Jobbers 

In the general mercantile field, the term 
"jobber" is used interchangeably with "wholesaler." 
He is one who handles one article or an entire or 
complete line of goods such as groceries, hardware, 
or drugs. The jobber ordinarily buys from the manu- 
facturers (often through brokers, or buying agents) 
and sells to the retail dealers, restaurants, hotels, 
etc. 

He assembles goods from many different sources 
and has a warehouse where these goods are stored until 
sold to retailers. He has a sales force which solic- 
its business from retailers. 



MIDDLEMEN 31 

Manufacturers have the option of selling to 
jobbers or of building up their own sales organization 
and selling to retailers direct. 

The jobber also generally extends credit to 
retailers and it is this credit that makes the 
existence of many retailers possible. 

A large jobber must carry many articles in stock. 
A large hardware jobber will carry 40,000 or more 
items in stock, counting sizes. The purchasing, 
warehousing, and shipping of such a varied line gives 
rise to many difficult problems. 

In the produce trade the jobber operates between 
the car-lot receiver and the retailer. The car-lot 
receiver usually does not have sufficient storage 
or sales facilities to dole out to retailers in lots 
of two or three boxes. He prefers to sell in large 
lots (several dozen or a hundred or so crates, boxes 
or barrels) to the jobbers who are equipped to supply 
the retail trade. In other words produce jobbers 
buy in less than car-lot quantities and sell in small 
lots (as small as 1 crate, sack or barrel) to the 
retailers. 

Cost of Doing Business — The jobber's cost of 
doing business varies with the kind and grade of 
goods handled and with the location of the store. 
The cost among wholesale grocers ordinarily varies 
from 6% to 12% of sales. The lower costs are found in 
the smaller towns and in stores handling staple goods. 
The higher costs are found in the larger cities and 
in stores handling high grade and fancy goods. The 
costs of handling hardware and drugs are higher than 
the cost of handling groceries. 

Services Performed by Jobbers — The principal 
services performed by jobbers are: 

1. Selling 

2. Assembling goods from many sources 

3. Warehousing or storage 



32 LESSON B 

4. Dividing large shipments into small lots and 
delivering them to retailers 

5. Financing, principally in the form of credit 
extended to the retailers 

6. Information given to retailers 

The Future of the Jobbers — Many predictions 
have been made that jobbers would eventually be 
eliminated. Their existence is challenged from 
both sides. In the mercantile field the large manu- 
facturers tend to establish their own branch houses 
and perform the jobbing functions themselves. Also 
as large retailing organizations develop, they tend 
to go over the heads of the jobbers and buy direct 
from the brokers or manufacturers. 

In spite of all predictions, jobbers are still 
important in the distribution of many lines. They 
handle a very large part of the groceries and drugs, 
over 50% of the hardware, and over 40% of the shoes 
sold in the United States. 

The tendency seems somewhat less pronounced in 
the distribution of farm products. There does, how- 
ever, appear to be a tendency for more products to 
pass directly from the car-lot receiver or whole- 
saler to the retailer without the intervention of 
the jobber, 

8 . Retail Dealers 

There are nearly a million retail stores in the 
United States and some two million people engaged in 
retailing. 

Large and Small Stores — The large department 
stores, mail order houses, chain stores, and down- 
town city specialty stores may be contrasted with the 
small general and specialty stores. 

The large stores are able to buy more cheaply than 
the small stores. With the exception of the chain 
stores, they generally carry a wider assortment of 



MIDDLEMEN 33 

goods and offer their customers a larger variety of 
goods to select from than do their small competitors. 
They can also afford to employ merchandising experts 
to work out efficient methods of conducting their 
businesses. 

The small stores, on their part, very frequently 
have a lower cost of doing business. Wherever inde- 
pendent stores eliminate expensive services such as 
credit and delivery, and operate on the same basis 
as the chain stores, it has been found that they can 
usually do business on as low a cost as the chains. 
The only important advantage that the big stores have 
is their ability to buy their goods cheaper by buying 
in larger quantities direct from manufacturers. 

In the same way, farmers have increased their 
buying power by having their cooperative organiza- 
tions buy in large quantities. 

Small Stores Most Numerous - The chain stores 
which combine large purchasing power and efficient 
operation, with the convenience of location enjoyed 
by the small stores, have had a phenomenal growth 
during the past 15 years. 

The small stores are, however, still the pre- 
dominating type and sell some 75% of the merchandise 
sold at retail in the United States. This can be 
explained very largely by the convenience of their 
locations. The retail stores exist primarily to 
supply us with goods when and where we want them. The 
small village and community stores have an advantage 
over the big stores in this respect. 

Services Performed by Retailers - The retailers 
assemble goods from many different sources at places 
convenient to the public. They keep the goods until 
desired, and divide them into quantities to suit the 
household purchasers. In addition to this, they 
often sell to consumers on credit and deliver goods 
to their homes. Many retailers often perform a 



34 LESSON B 

service in introducing new goods and advising their 
customers in the selection of goods. 

To summarize, they perform the following func- 
tions: 

1. Assembling 

2. Storing 

3. Selling 

4. Dispersing or Dividing 

5. Financing 

6. Transportation (delivery of goods) 

Retailers are the most indispensable of middle- 
men. Their average efficiency is, however, very low. 
Our efforts should be directed toward increasing 
their efficiency rather than in trying to eliminate 
them. 

HOW TO FIND THE RIGHT AGENCY TO HANDLE YOUR 
PRODUCTS 

Whether you are going to sell to a local buyer, a 
car-lot shipper or a manufacturer, or whether you are 
going to sell through a broker or commission man, 
you want to be sure that the agency you select is 
capable and reliable. 

It is true that there are men performing middle- 
men services who are not above sharp practices, the 
same as there are such men in all lines of business. 

Sources of Information on Middlemen 

You may be helped in selecting the right agencies 
by getting in touch with customers of theirs who have 
done considerable business with them, or by asking 
for information from your county agent, government 
men, or farmers' organizations that may have informa- 
tion of value to you. 

Reliable dealers will be glad to supply you with 
the names of some of their oldest customers. Either 
a personal call upon these customers, or a letter 



M I DDLEMEN 35 

directed to them will probably get for you the 
valuable information you seek. 

Your banker may be able to give you the informa- 
tion you want, because he learns from other farmers 
the satisfaction they have had by selling through 
certain agencies. Then too, he usually has credit 
rating books, which makes it possible for him to look 
up for you the financial standing of any business 
concern. 

Farmers' Cooperatives Gather Facts About Middle- 
men 

Some of the larger farmers' organizations have 
inaugurated a system of filing information regarding 
middlemen. If you have access to such records, you 
will probably find them more satisfactory than in- 
formation from most any other source. 

If you belong to an association that should be 
doing this work, but is not, it would certainly pay 
you to suggest that a file of this sort be inaugurated. 

In selecting a commission man or broker, you wish 
to know, of course, not only of his financial and 
moral responsibility, but of his ability as a sales- 
man. This, again, is best determined by communica- 
tion with his customers. Some commission men have a 
better record for securing high prices than others. 
And this is probably due to the difference in sales 
ability between the two men. 

HOW MANY MIDDLEMEN HANDLE VARIOUS PRODUCTS 

There are no set routes by which agricultural 
products of any particular class always travel from 
producer to consumer. The same class of products 
may pass through the hands of one middleman or 
through the hands of half a dozen. However, it is 
quite common for most of the farmers in one section to 
sell any given product through approximately the same 
channel. 



36 LESSON B 

For example, most of the farmers in the vicinity 
of Madison, So. Dak. , sell their grain to one or more 
of the nine local elevators there. On the other 
hand, most of the farmers in the vicinity of Plymouth, 
Wis., sell their milk to the cooperative cheese fac- 
tory. 

The grain marketed at Madison, So. Dak. , is likely 
to pass through the hands of a number of other middle- 
men besides the local buyer. On the other hand, the 
cheese is likely to be sold by the cooperative 
association direct to a jobber in New York, who, in 
turn, sells it to retail dealers. 

Most Products Are Owned by Several Middlemen 
Before Being Finally Consumed 

It is quite common for a local grain elevator to 
ship its grain to Chicago to be sold either by a 
broker or by a commission man. The agent sells to a 
terminal elevator company, to a milling company, to 
an exporter, or to a speculator. The speculator may 
sell to a milling company, a terminal elevator com- 
pany, or to an exporter. 

In the same way, a local cash buyer of apples at 
Wenatchee, Wash., may sell those apples to a car-lot 
wholesaler in an eastern market, or he may put them 
into cold storage, or they may be shipped to England 
via the Panama Canal, or they may be sold in any one 
of several other locations. 

It will probably be quite apparent to you that, 
as a rule, the farmer determines only the first mid- 
dleman. He selects the man to whom he will sell. 
But he has nothing to say as to who will handle his 
products between that man and the ultimate consumer. 

1. When No Middleman Is Involved 

The shortest possible trade channel is found when 
goods pass directly from the producer to the con- 
sumer without the intervention of any middleman. 



MIDDLEMEN 37 

A considerable quantity of vegetables, fruits, 
and poultry products pass directly from the producer 
to the consumer. These products are sold by farmers 
to consumers and shipped by parcel post, sold on city 
markets, or peddled from house to house. 

In the smaller towns and cities, local dairymen 
often operate their own wagons and supply milk 
directly to consumers. The expense involved by the 
duplication of wagons of different dairymen, even in 
small towns, often leads to the distribution of milk 
by a central distributing company. 

Manufacturers Sell Direct to Consumers - Manu- 
facturers with their own retail stores are technic- 
ally selling direct to consumers. Such manufactur- 
ers, however, must build up retail organizations, 
invest capital, and meet all the problems met by inde- 
pendent retailers. For these reasons, manufactur- 
ers' retail stores may rightly be considered as 
middlemen. 

Ice is often sold direct by the producer to the 
consumer. 

Made to order clothes are sold by the maker to 
the wearer, but the raw material has previously been 
handled by several middlemen since leaving the 
farmers' hands as wool or cotton. 

Raw materials, such as steel or tin plate, fre- 
quently are sold directly to the manufacturers of the 
finished product. Middlemen are, however, generally 
involved in getting the finished product to the 
ultimate consumers. 

2 . When One Middleman Handles the Product 

Many goods pass through the hands of only one 
middleman between the producer and the consumer. 
This is true when the farmer sells his produce to a 
retail grocer or his milk to a milk distributing 
company. 



38 LESSON B 

Many manufacturers sell their goods direct to 
retailers. This is commonly true of such articles as 
the better grades of clothing and shoes. Manufac- 
turers of a large line or a family of products, or of 
articles having a high unit value, are the most likely 
to do this. 

Small, or little known manufacturers, or spe- 
cialty (short line) manufacturers are very commonly 
unable to establish direct connections with re- 
tailers. This is true for the very simple reason 
that the expenses of their traveling salesmen would 
be too high in proportion to the value of the goods 
which they could sell. 

Automobiles, coal, gasoline, and women's 
clothing are other examples of articles that often 
pass directly from the manufacturer to the retailer. 

Many retailers now buy in large enough quantities 
to enable them to establish direct relations with 
manufacturers. This is often true of mail order 
houses, department stores, and chain stores. 

Thus, the chain grocery store may buy in car lots 
and obtain as low prices as obtained by wholesale 
grocers, while the ordinary retail grocers buy their 
goods from wholesale dealers, and pay more. Some 
city grocers buy the entire production of eggs from 
one or more poultrymen. Others take all the butter a 
local dairyman can make. 

5. Two Middlemen 

Many goods pass through the hands of two middle- 
men between the producer and the consumer. This has 
been said to be the most typical trade channel, but it 
Is doubtful if any one channel can be said to be the 
most typical. 

This trade channel may be illustrated by the fol- 
lowing tabulation: 



MIDDLEMEN 39 

Producer sells to - (or through) 

1. Local buyer 
Car-lot shipper 
Broker 
Commission man 

Farmers Cooperative Association 
Processor or manufacturer 
Car-lot wholesaler 

who sells to - 

2. Retail dealer 

Manufactured goods often pass from the manu- 
facturer to the wholesale dealer and from the latter 
to the retail dealer. This may be true of clothing, 
dry goods, shoes, hardware, farm implements, auto- 
mobiles, coal, or groceries. 

Very commonly, however, a broker or sales agent 
is found between the manufacturer and wholesaler. 
Some wholesale produce dealers send their own repre- 
sentatives into the growing districts to buy vegeta- 
bles or fruits from farmers. When such a wholesaler 
sells to the retailer, only two middlemen are in- 
volved. 

In some sections, farmers consign their produce 
to commission men who sell to retailers. This is 
true, for example, of a considerable quantity of local 
produce shipped to Philadelphia and Cleveland. 

Some Manufacturers Do Their Own Wholesaling - 

Many manufacturers operate their own branch houses 
to perform the wholesale functions. These branch 
houses have selling organizations to solicit orders 
from the retailers and supply the goods to the re- 
tailers in the desired quantities. 

This is a very common practice among farm imple- 
ment manufacturers and meat packers. About 90% of 
the farm implements are sold to the retail dealers 
through manufacturers ' branch houses and some 8% is 
sold through jobbers. In 1918, 27 farm implement 



40 LESSON B 

manufacturers had 282 branch houses. They also 
maintained 444 transfer stocks and sold to 140 
jobbers. 

Interstate slaughtering houses similarly had 
1,327 branch houses of which 1,188 belonged to the 
so called "big five" (Armour, Swift, Morris, Wilson, 
and Cudahy) . 

Many other manufacturers operate their own 
branch houses. H. J, Heinz Co., for example, main- 
tain 50 branches. 

Perhaps such branches should be considered as 
parts of the parent organization. As these branches 
duplicate the facilities and services of the whole- 
sale dealers they should, however, from an economic 
standpoint, be considered as middlemen, 

4. Three Middlemen 

Large quantities of goods pass through the hands 
of three middlemen between the producer and consumer. 
The producer sells to - (or through) 

1. Local buyer 
Car-lot shipper 
Broker 
Commission man 

Farmers' cooperative association 
who sells to - 

2. Wholesaler or jobber 

who sells to - 

3. Retail dealer 

Three middlemen are often involved in the dis- 
tribution of fruits, vegetables, poultry, eggs, milk, 
groceries, hardware, and dry goods. These lines of 
merchandise commonly pass through the hands of a 
broker, a sales agent, or a buying agent between the 
producer, and the wholesaler. With groceries, the 
broker is the most common. With hardware, the buying 
agent is very generally used. With dry goods fin- 
ished by the mill, a selling house or agent is often 
used. 



MIDDLEMEN 41 

Why Brokers Are Employed - Producers using 
brokers are often relatively small. Most of their 
capital and time is needed in production. They have 
little time to devote to marketing their goods. They 
are not experts in marketing. It is often cheaper 
for them to employ brokers or sales agents than to 
maintain sales organizations large enough to keep in 
constant touch with the wholesalers. 

Not only is the broker's commission often less 
than the cost of maintaining a sales department, but 
the brokers are always on hand. If the manufacturer 
had only his own sales force, many sales would be lost 
due to the fact that a salesman was not in a particular 
town when the wholesaler was ready to buy. 

The brokers and sales agents are also valuable 
for the information they give about market condi- 
tions, current prices, and the probable trend of 
prices. 

Farm Produce - The local buyers of farm products, 
or the farmers cooperative associations, often sell 
their products to wholesale dealers. This is true 
of the California Fruit Growers Exchange in some 
cities. In other cities this Exchange has its goods 
sold through the fruit auctions. 

In some cities, wholesale receivers sell to re- 
tailers, while in other cities they sell to so-called 
jobbers who supply retailers. 

The exchange, the wholesaler, and the retailer 
make three ownerships. 

5. Four Middlemen 

Four middlemen not infrequently handle goods 
between the producer and the consumer. The producer 
sells to - (or through) 

who sells to - (or through) 
1. Local buyer 

Farmers' cooperative association 

Broker 

Sales agent 



42 LESSON B 

2. Auction company 
Commission man 
Car-lot wholesaler 
Car-lot shipper 
Processor or manufacturer 
Broker 

who sells to - 

3. Jobber 

who sells to - 

4. Retail dealer 

The local buyer, or the farmers' cooperative 
association, may sell farm products through an auc- 
tion or broker to wholesale dealers. Or they may 
sell to a car-lot receiver (wholesaler) who, in turn, 
sells in smaller quantities to jobbers. 

In some cases, local buyers sell to car-lot ship- 
pers, who sell through a broker or directly to a car- 
lot wholesaler. This is a very common practice, for 
example, with eggs. Eggs are produced in small 
quantities on many farms. Their perishability pre- 
vents their storage for any length of time by either 
the farmer or local buyer. 

For this reason, many of the local buyers are 
unable to buy a car load before the eggs must be 
shipped. If the city receiver sells direct to the 
retailer, then only four middlemen are involved in 
the distribution of the eggs. 

Some manufacturers have their goods, often their 
entire outputs, sold by sales agents. As these 
agents do not have offices in every town, they very 
often engage brokers to sell the goods in other 
cities, paying them brokerage. Sales agents often 
aid in the sale of canned goods, cloth, and other 
staple goods produced by a large number of small 
plants. 

Flour Usually Follows Route No. 5. - Flour, the 
wheat for which passes through two dealers in reach- 
ing the miller, commonly passes through two hands - 



MIDDLEMEN 43 



the wholesaler and retailer - after leaving the 
miller. This makes a total of four middlemen, aside 
from the miller, between the farmer and the housewife. 

The importer often sells through brokers to in- 
land wholesalers. This makes four middlemen in the 
United States - the importer; the broker; the whole- 
saler or jobber; and the retailer. In the case of 
print cloths, the mill may sell through a broker to 
a converter who has the cloth finished. Between the 
converter and consumer two or more middlemen may 
handle the cloth. 

6. Five Middlemen 

Five middlemen are involved in the distribution 
of many articles. In the case of eggs, for example, 
the (1.) local buyer may sell to a (2.) car-lot ship- 
per who sells through a (3.) broker to a (4.) whole- 
sale dealer. The latter supplies the (5.) retailers. 

The (1.) local buyer, or farmers' cooperative 
association, may sell potatoes, apples, or other farm 
products through (2.) brokers to (3.) car-lot 
wholesalers. These wholesalers in some cities sell 
in less than carloads to (4.) jobbers. The latter 
supply the (5.) retailers, restaurants, etc., selling 
in lots as small as one package (box, barrel, or 
crate) . 

The wholesale receiver may sell on the auction to 
other wholesale dealers who supply the retailers. 
In either case, five middlemen are involved. 

Flour may pass through five middlemen besides the 
miller - the (1.) country elevator, (2.) commission 
man, (3.) terminal elevator, (4.) wholesaler and 
(5.) retailer. If it is marketed as bread, then the 
baker intervenes between the wholesaler and retailer. 

Cloth may pass through five middlemen between the 
mill and the consumer - (1.) the sales agent, (2.) 
broker, (3.) converter, (4.) wholesaler, and (5.) re- 
tailer. If it is made into garments before being 
sold to the consumer, other middlemen are involved. 



44 LESSON B 

7. More Than Five Middlemen 

Many goods pass through the hands of more than 
five middlemen. This would be true of many manufac- 
tured goods if the middlemen handling the raw ma- 
terials, semi-finished goods, and finished products 
were considered. 

In the case of cotton dresses, for example, one, 
two, or three middlemen are involved in getting the 
cotton to the mill. The cloth may pass through the 
hands of one or two middlemen between the mill and the 
garment maker. The completed garment passes through 
the hands of one or two dealers on its way to the 
consumer. If the cotton is spun by a mill that does 
not weave, another middleman may be involved in get- 
ting the thread from the spinning to the weaving mill. 

Even in the case of farm products, which do not 
have to be processed, six or seven middlemen are 
sometimes used in their distribution. Thus a ship- 
ment of Oklahoma eggs consumed in New York was found 
to have passed through seven middlemen - (1.) a local 
buyer, (2.) a country shipper, (3.) a car-lot shipper, 
(4.) a broker, (5.) a car-lot wholesaler, (6.) a 
jobber, and (7.) a retailer. 

It should be noted that each of these dealers 
passed the eggs on toward the consumers. No sale was 
made in the same stage of distribution. 

Variation in Routes 

From the foregoing discussion it is evident that 
there is a considerable variation in the channels 
followed by the same product in reaching the market. 
For example, a Wisconsin cheese factory may sell to a 
local retail grocer while the cheese ordinarily 
passes through two middlemen before reaching the 
retail grocery located at a distance. 

Shoes, to take another example, do not all follow 
the same channel. One manufacturer sells to the 
retailers, another sells to the wholesaler, while a 



MIDDLEMEN 45 

third operates his own retail stores and sells to 
retailers in towns where he has no stores. 

And yet, in spite of this variation, there are 
certain channels which are typical for certain prod- 
ucts. 

Sales in the Same Stage of Distribution 

Not only does merchandise ordinarily pass through 
the hands of several middlemen in being passed from 
the producer to the consumer, but sales are not 
infrequently made between middlemen in the same stage 
of distribution. Such sales do not get the goods any 
closer to the consumer. 

Men familiar with any trade can tell of many such 
sales. Government and other reports often cite many 
instances of goods being sold and resold in the same 
stage of distribution. For example, a car of onions 
sold a dozen times without being unloaded. In the 
grain trade, such sales are known as "scalping." 

Scalping 

The Federal Trade Commission reported that from 
5 1/2% to 9 1/2% of the grain received in Minneapolis 
during 1916-1917 was scalped. Some cars were 
scalped as often as four times. 

Such speculative sales are generally thought to 
serve no good purpose. In fact, they are generally 
thought to be detrimental. During the World War, 
one of the objects of the United States Food Adminis- 
tration was to prevent such sales in the distribution 
of food stuffs. 

Many economists argue that speculation on organ- 
ized produce exchanges serves many useful purposes. 
A later lesson will be devoted to this question. 
Speculation on organized exchanges is one thing, but 
speculation outside the strict regulations of the 
exchanges is quite another thing. 



46 LESSON B 

S peculation Not Always Involved 

Sales in the same stage of distribution are not 
always speculative. We are all familiar with the 
procedure of the retail grocer who receives an order 
for an article which is out of stock and sends his 
delivery boy across the street to buy it from another 
retailer. 

Perhaps a more typical illustration is furnished 
by the wholesaler who expects to sell a thousand 
cases of canned tomatoes during the season and buys 
that quantity. The next spring he finds that he has a 
surplus of two hundred cases. He then notifies his 
broker who finds another wholesaler who is short of 
canned tomatoes and makes a sale. 

A sale is made here between two wholesale grocers 
without any intention of speculating. If, however, 
the first grocer purposely overbought in anticipation 
of an increase in price, it would be a plain case of 
speculation. 

SUPPOSE THERE WER E NO MIDDLEMEN 

If you were a grain farmer of the Northwest, how 
could you get your grain to the cotton farmers of the 
South, the fruit growers of California, or the mill 
workers of the East without the middlemen? 

Or to turn the question around, how could you 
secure hardware from Pittsburgh, clothes from New 
York, packing house products from Chicago, cotton 
from the South, beef from Texas, or pork from Iowa? 

To ask such questions is to answer them - it 
simply could not be done except on a very limited 
scale. If we had no middlemen, farmers would have no 
market for goods which they could not sell in their 
immediate neighborhoods or by personal visits to 
nearby towns. Selling little, they could buy little 
as they would have little money. Also they could buy 



MIDDLEMEN 47 

only from other producers with whom they could come 
into personal contact. 

A Return to Primitive Living Conditions 

Such a situation would mean a return to living 
conditions more crude than those existing in the days 
of our great grandfathers. Each home would have to 
be practically independent of every other home. Each 
family would have to grow its own wool, flax, and 
cotton; card, spin, and weave the cloth; and make its 
own clothes. 

It would have to make its own furniture, utensils, 
tools, implements, and vehicles, and very largely 
devise its own amusements. Even in the days of our 
great grandfathers, there were a small number of 
middlemen. 

We Are Better Off To day 

Most of us believe that we are better off today 
with our commercialized farming and factory-made 
goods than we were in the old days of ceaseless toil 
and little recreation. The middlemen may be ineffi- 
cient, but they are a part of the system. We should 
strive to increase the efficiency of the middlemen 
rather than to abolish them. 

Need More Study 

It is only within the last few years that any 
serious study has been made of marketing by our uni- 
versities and the various government departments. 
Marketing needs more study to get the facts and point 
to the way for improvements. When ways to improve 
conditions are found, we need the cooperation of the 
entire population to bring about the changes neces- 
sary to make the improvement. 



48 LESSON B 



THE HOW, WHY, WHEN, AND WHERE OF THE INDUSTRY 

After you have mastered Lessons A and B, you have 
a general knowledge of the services performed in mar- 
keting, as well as a general knowledge of the men who 
perform these services. 

You now want to get down to brass tacks. You want 
to know just how the marketing of this class of com- 
modities in which you are specifically interested 
has developed. And so in the next lesson, you will 
be given a complete picture of this part of the market- 
ing of farm products. 

The next lesson is a picture of the industry, but 
in that picture you will find a great store of specific 
instruction. 

You will learn How, and Why, and When, and Where. 

You will learn what the other nations produce of 
this commodity; you will learn to whom they sell and 
to whom we sell. 

You will learn from whom the various nations buy. 

And you will learn the probable future of this 
part of the industry. That is exceedingly important, 
because your marketing work must necessarily be done 
in the future. 

Will the present marketing system be in existence 
five years from now? If not, how is it likely to be 
changed? 

Will the United States be producing as great a 
surplus as now? If not , how will that affect the 
profits of the industry? 

These, and many other questions will be answered 
in a really fascinating manner in your next lesson. 



MIDDLEMEN 49 



GLOSSARY OF MARKETING TERMS 
USED IN THIS LESSON 

Inasmuch as a glossary is provided with each lesson, no attempt is 
made either to give complete definitions in each glossary, or to give all 
the possible meanings of each term when used in different connections. 

The definitions here given explain the meanings of the terms as applied 
to marketing farm products, and more specifically the meaning as used in 
this lesson. 

It is difficult to find in dictionaries satisfactory definitions 
of many marketing terms as used in a commercial sense. In fact, it would 
be difficult to find a definition for some of these marketing phreses in 
any other place except in this glossary. 



board of trade, As used in this lesson, this 
term refers to an organization formed to provide a 
place and rules of trading for its members who wish 
to buy and sell certain commodities. 

brand name, A name used to designate the products 
manufactured or sold by one individual or concern 
under a name which is distinctive, such as Quaker 
Oats, Sunmaid Raisins, Sunkist Oranges. 

broker, n. An agent who negotiates sales, either 
for the buyer or seller. In the strict sense of the 
term, only that man is a broker who does not actually 
own or have possession or control of the goods for 
which he is finding a buyer or a seller. 

car-lot shipper, A man or concern that assembles 
products at local stations near to the territory 
where they are produced, into carloads and ships 
these carloads to a terminal market or place of con- 
sumption. 

car-lot wholes a ler, The same as car-lot receiver. 
A man or concern that buys products in car-lot 
quantities and resells either in car-lot quantities 
or less. 

chain store, One of a series of retail stores 
owned by the same concern. 

cold storage plant , A building equipped to store 
products at uniform temperature, usually 42 degrees 
Fahrenheit or less. 



50 LESSON B 



commission merchant. One who accepts goods for 
sale on consignment ;* the same as commission man. 

consignment basis. This refers to the shipping of 
goods to a commission man who is instructed to sell 
the goods to the best advantage, and who is to 
receive a percentage of the sale price (a commission) 
in payment for his service. 

converter, n. A man or concern that changes the 
form or condition of products to make them more 
acceptable for the use of the ultimate consumer. 
(In the textile trades a converter is one who has 
cloth dyed or printed. ) 

creamery, a. A factory where butter is made. 

deciduous fruit, Fruit borne on trees that shed 
their leaves at the close of each producing season. 

direct marketing. The sale by the producer to the 
ultimate consumer. 

dispersing, n. That type of middleman service that 
helps to get the product from the wholesaler or 
manufacturer to the ultimate consumer; the opposite 
of assembling. To illustrate: Assembling means 
the bringing of smaller lots together to make larger 
quantities of more or less uniform quality. Dis- 
persing means the breaking up of these larger quan- 
tities into smaller lots that are more convenient 
for purchase by jobbers, retailers, or ultimate 
consumers. 

drayage companies. Companies engaged in transport- 
ing products within a restricted area either in 
horse-drawn vehicles or motor trucks. 

exchange (or produce exchange), n. As used in this 
lesson, this term refers to an organization formed 
to provide a place and rules of trading for its mem- 
bers who wish to buy and sell certain commodities. 

finished products, Products that have been 
processed or manufactured to put them in a form more 
valuable for use by ultimate consumers. 

flat rate, A rate that is a specific amount to be 
charged for handling a specified quantity; the 
opposite of a rate based upon a percentage of the 
buying or selling price. 

glut, n. A condition that sometimes occurs in a 
market, characterized by the presence of more of a 



MIDDLEMEN 51 



certain product that can be sold or consumed in the 
territory served by the market before some of it will 
spoil or more of the product will arrive for sale. 

grading, n. The separating of products so that 
each lot is uniform in certain respects, such as size, 
color, quality, and degree of ripeness. 

interstate, adj. Referring to action performed 
partly in one state and partly in another. Commonly 
used in connection with the word "transportation," 
to refer to the moving of products from one state 
to another. 

interstate slaughtering house, A slaughtering 
house that sells at least a part of its products 
outside of the state in which it is located. 

i ntrastate, adj. Referring to action performed 
within a single state ; commonly used in connection 
with the moving of products from one location to 
another in the same state. 

inland wholesaler, A wholesaler located in a town 
not considered to be a central market. 

in transit, A term used to indicate that products 
are in the process of being moved from one place to 
another on any common carrier. 

.jobber, n. In the general mercantile field, a 
jobber is a wholesaler who handles a line of goods such 
as groceries, drugs, etc. In the agricultural mar- 
keting field, a jobber is one who handles farm 
products in less than carload lots as a rule, buying 
from the carlot receivers and selling to the retailers 
in amounts convenient for them. 

mail order house, A business concern that secures 
its orders by mail without the aid of personal 
salesmen. 

ma rket reports, A list of prices paid for certain 
grades and classes of commodities. It may also 
include remarks describing the tendency of prices, 
sales, and supply, and the interest taken by buyers 
in the purchase of products during the time specified 
in the report. 

mercantile field, A general term applying col- 
lectively to that part of business comprising the 
buying and selling of finished products. 



52 LESSON B 



mercantile broker, A broker who specializes in 
selling goods instead of stocks and bonds. 

merchandising broker, A broker who also buys and 
sells goods on his own account. 

middleman, n. An individual or agency performing 
some essential marketing service on products between 
the time they leave the farm or factory and the time 
they are bought by the ultimate consumer. In the 
strict sense of the term, a middleman is only an 
individual or agency that buys or sells commodities. 
But in a broader sense, such agencies as railroads 
that move products, and bankers who finance marketing 
are considered to be middlemen. 

negotiate (a sale), n. The act of arranging with a 
buyer to purchase certain commodities. 

p rincipal, n. A man or concern whom a broker or 
other agent serves. 

p rocessor, n. A man or concern who changes the form 
or condition of products to make them more accept- 
able to consumers. 

raw products, Products in their original state 
before their form has been changed by processing or 
manufacturing. 

sales agent, n. A broker or agent who finds a buyer 
and negotiates a sale and who ordinarily has broader 
powers than the broker. 

service costs, The charges paid to those who per- 
form one or more of the essential marketing services: 
standardization, packing, assembling, storage, 
transportation, financing, risk-taking, selling, 
dividing or dispersing. 

s peculation, n. As used in this lesson, this refers 
to the buying or selling of articles by a man or con- 
cern without the intention of changing the form or 
location of the articles, but with the idea of taking 
the risk of falling prices in order to benefit by 
an expected rise in price. 

spread, n. Commonly used in marketing to refer to 
the difference between the price received by the 
producer and that paid by the ultimate consumer, or 
between two middlemen who handle the commodity 
enroute. In a general sense, the term is used to 
indicate the difference between the price anyone pays 
for an article and the price for which they resell it. 

, 11-22-1M-5 



LIBRARY OF CONGRESS 



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